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Leasing Frequently Asked Questions (FAQ)

Have questions about leasing?

Leasing Frequently Asked Questions (FAQ)

To quote Billionaire J. Paul Getty, “You should buy what appreciates…and lease what depreciates.”

If you have an endless supply of capital you may want to continue to purchase your equipment. In today’s economic world, many if not most small business owners have gone through a period of time where banks have reduced their operating lines, tightened credit and have simply said "no" even though they've had a good and/or long relationship.

Business owners today, need to better analyze how they utilize their cash flow and available credit lines. They also need to develop relationships with other financial institutions to complement their existing bank relationship.  If they fail to do this they may find themselves "short" and unable to take advantage of potential opportunities that arise or they may find themselves scrambling for capital.

Below are some Frequently Asked Questions (FAQs) about Leasing:

Q: What is a lease?
A: A lease is a contractual agreement by which the customer (lessee) typically pays a monthly payment to the lending source (lessor) for the use of the equipment over a fixed term.

Q: Is there an advantage to leasing over a loan?
A: Keeping in mind there are many variables to this question:

  1. Requires a significant down payment? Lease – No. Loan - Yes
  2. Secured with collateral? Lease – No. The equipment itself is collateral. Loan – Yes. Additional assets are often required.
  3. Who bears the risk of equipment obsolescence/devaluation:? Lease – Lessor. Loan – The customer.
  4. Can claim tax deductions? Lease - The entire lease payment can be claimed under most types of leases. Loan – The customer may claim tax deductions for depreciation and interest. As always, check with your tax professional on the applicable tax savings.
  5. Recorded on the balance sheet? Lease – With an operating lease, the equipment does not appear as an asset. Loan – Equipment is recorded as an asset and liability.
  6. Effect on cash flow? Lease – Payment are generally spread out comfortably over the term. Loan – Initial down payment and strict repayment schedule can put a strain on cash flow. 

Q: Who can apply for a lease?
A: Any business, company, association or non-profit or person can obtain a lease.

Q: What type of information do you need to begin the lease approval process?
A: A complete, signed Credit Application. This provides lenders with all the required company information, references, type of equipment, price, and requested terms. It should also include the owner/principals information (including their SSNs) and contact information. In today’s financial world, almost all leasing agreements require a Personal Guarantee (PG) from the principal(s).

Q: What type of equipment can be leased?
A: Most types of equipment can be leased and can be used for business or personal purposes.

Q: What are the minimum and maximum amounts for an equipment lease?
A: All Lessors and Lenders have guidelines, but most any reasonable request can be accommodated.

Q: How does the equipment lease process work?
A: Select the equipment you would like to obtain, and finalize the price with your vendor. The lessor will help you determine the best equipment lease option and term (commonly matched to your use by time and mileage). Complete the application and upon approval, the lessor will begin the process of documenting the transaction and issuing a purchase order or dispensing funds to your vendor depending on the situation.

Q: What is the turn-around time to receive funding for purchasing equipment?
A: Dependent on your responsiveness to providing any supporting documentation to your Credit Application to the lender, and of course your credit history. It could be as quick as a couple of business days.

Q: What types of term payments are offered?
A: Lease terms and payments vary by lending source, but typically the term can be from 36-72 months. There may be lending source willing to provide seasonal payment plans based on cash flow fluctuations (once again matching lease terms to usage needs).

Q: Are the lease rates fixed for the entire term?
A: Typically, the lease rates do not change.

Q: What are the options at the end of the lease period?
A: The lease options at the end of the lease term are as varied as the lease types.

  1. Typically the question to answer is, “Do I want to take ownership at the end of the term?” If so, there are several common lease structures: dollar buyout, Fair Market Value buyout, or a pre-established residual like 10-40% of original purchase value.
  2. If you don’t want to take ownership, you can maximize your term cash flow by carefully matching the term length and mileage estimates to your expected use. The lessor will structure the quote to minimize any “extras” at term end.

Q: Can I bundle installation, sales tax and other associated delivery cost into the lease?
A: Yes, sometimes the soft cost such as taxes, tags and document prep fees can be included in the monthly lease, subject to Lessor and/or Lender approval.

Q: Is insurance needed on the equipment?
A: Yes, you must carry insurance coverage for fire, theft, loss and general liability. The details on insurance are explained in the terms of the lease agreement.

If you would like more information, please fill out our easy Contact Form and tell us how you plan on using the vehicle so we can better understand your needs and requirements.